IMF and World Bank Spring Meetings: drifting off course as multilateralism faces headwinds.


The 2017 spring meetings of the IMF and World Bank, which also included the second edition of the Global Infrastructure Forum, took place against the uncertainty generated by geopolitical changes such as the election of President Trump in the US and the formalisation of the UK’s exit from the European Union.

A draft budget proposal by President Trump, released in the run-up to the Spring Meetings, overshadowed last week's discussions as it suggests that instead of getting a capital increase, the World Bank will experience a substantial cut in its funding from its main shareholder. Meanwhile, civil society organisations (CSOs) voiced their concerns about how far the Bretton Woods Institutions are from serving development objectives.

Systematic and concerned focus on private finance.

The World Bank Group (WBG) presented a document to the Development Committee – the World Bank’s Ministerial-level steering group – called “Forward Look. A vision for the World Bank Group in 2030. Progress and challenges,” which sets out detailed ideas, based on previously agreed priorities, for how to create “a better, stronger, and more agile” institution. In short, it argues for a “systematic use of the ‘cascade’ (approach)”, which according to WBG “helps to create markets and leverage more private financing”.

‘Cascade’ was last week's buzzword and many searched for its implications. According to WBG it means that the institution “first seeks to mobilize commercial finance, enabled by upstream reforms where necessary. (…) Where risks remain high, the priority will be to apply guarantees and risk-sharing instruments,” to lower the risk for private sector investors. Only where private financing of projects is not possible, will official and public resources be applied. This means a more vigorous and systematic step towards the implementation of the Billions to Trillions agenda, challenged several times by Eurodad - only this time accompanied by changes to the institutional incentives to guide staff performance.

Eurodad and CSO concerns about the implications of a strong focus on leveraging private finance, including risky and expensive public-private partnerships (PPPs), were voiced in the Civil Society Policy Forum, in meetings with management and with WBG Executive Directors. In fact, this was the first face-to-face exchange after a letter signed by more than 110 NGOs and trade unions voicing concern over the fiscal risks of PPPs was sent to WBG's PPP unit and Executive Directors.

As we made clear last week, instead of promoting private finance instruments that have the potential to create a lot more debt, the WBG – a public development bank with a poverty reduction mandate – should see its role as helping governments select the best financing mechanism for them, based on a comprehensive and transparent analysis of the true costs and benefits over the lifetime of the project. Given the fiscal risks posed by PPPs, it is no surprise that IMF representatives have been warning countries against them.

A word of hope for the International Finance Corporation’s investments in financial intermediaries?

Importantly, in the run-up to the meetings, CSOs received a message from the CEO of the International Finance Corporation (IFC) Philippe Le Houérou, who reacted in a blogpost to longstanding CSO concerns about IFC’s investments in the financial sector. One of his main commitments is to reduce “the number of general purpose loans to banks, which can be used to support any client sub-projects in any sector, and continuing to increase the number of targeted loans,” which can be used for development purposes. This public statement is a welcome step as it shows that IFC finally acknowledges the problems. CSOs discussed the implications of this announcement, and will keep monitoring the concrete outcomes of the commitments to understand whether they result in real changes on the ground.

Public Development Banks and infrastructure finance.

The 2017 Global Infrastructure Forum, organised under the theme “Delivering Inclusive, Sustainable Infrastructure,” served as a talking-shop for many of the development banks wanting to show how prepared they are to leverage private finance. Unfortunately, it was far from the inclusive and participatory setting necessary to discuss exactly what “inclusive” and “sustainable” infrastructure means (just one CSO representative had the chance to talk for three minutes). In keeping with the tone of the week, the final statement focuses on the enhancement of private sector involvement and finance, and the catalytic role of Multilateral Development Banks (MDBs). While it was clear that public development banks at all levels are in a powerful position to support infrastructure plans, not all PDBs succeed. As part of this debate, last week, Eurodad launched a report called Public Development Banks: Towards a better model, which provides a framework for institutional and governance reform that challenges the practices of existing and emerging institutions, and the governments backing them.

Expedient optimism at the IMF.

For once, the IMF’s World Economic Outlook reported that economic growth is expected to pick up in the near future. But this was the only good news for these two international finance institutions that like to see themselves as positioned at the centre of the global financial system. On top of the bad news of President Trump's draft budget proposal - and its implied cut to World Bank funding - global media pounced on a statement by Germany’s Finance Minister Schäuble saying that the European Stability Mechanism could be upgraded into a fully-fledged European Monetary Fund, which would render future IMF interventions in the Euro zone - and perhaps all of Europe – unnecessary. At the start of the Spring Meetings, it turned out that the G20 group of major economic powers had so few joint ambitions that they did not even bother to issue their usual communiqué. It seems multilateralism is in a dire state - a poor basis for fruitful Bretton Woods Institutions meetings.

New debt crises.

Ironically, while the IMF reports that growth is picking up, so is the demand for IMF assistance. In the past six months, new lending arrangements were approved for Jamaica, Egypt, Cote d’Ivoire, Moldova, Niger, Poland, and Haiti. Rumours abound that negotiations are taking place about many more programmes. The prolonged period of low global commodity prices and subsequent drop in export revenue means that many developing countries’ currency reserves are depleted.

Are we facing an “African Debt Crisis 2.0”? This was the discussion topic at a side-event that Eurodad partner Jubilee USA organised at the Civil Society Forum. The risks that old debt problems in advanced economies remain unresolved while new ones quickly emerge in developing countries, also shaped debates at several high-level events, including one addressing the “Global Economy in an Upswing.”

Limited appetite to act.

Meanwhile, government delegations showed no sense of urgency to put effective institutions in place that could prevent or resolve debt crises. In the absence of ambition, the International Monetary and Financial Committee (IMFC) – the ministerial committee that oversees the IMF – opted for filling pages of the communiqué by simply listing and welcoming different items on the existing IMF work plan. Most of these are of a fairly narrow and technical nature, related to the surveillance roles of the IMF.

On the debt side, the IMFC welcomed the “ongoing work to examine the current debtor-creditor engagement framework in sovereign debt restructurings and the recent study of state-contingent debt instruments.” These are two second-best initiatives undertaken by IMF staff, since the work on developing an actual debt workout mechanism remains shelved due to political blockages. While the terms “inequality” and “gender” increasingly feature in IMF and World Bank discourses, there is still no credible operationalisation in policies, lending or conditionality. That the IMFC made a call to “support promoting gender diversity (sic!) in the Executive Board” is a slow start.

Finally, the communiqué of the G24 - the group of major developing countries and emerging economies - asked that an intergovernmental tax body be created. Not, however at the Bretton Woods Institutions, but at the United Nations.